Tesla (TSLA 0.78%) has been on a winning streak lately. After delivering its first-ever profitable year in 2020, it notched record-breaking volume, revenue, and net profits in 2021.
While the bulls have high expectations for Tesla to sustain its momentum beyond 2021, the bears expect challenges such as supply chain disruption and cost inflation to derail the company. So far, the bulls have been right once again, as Tesla posted another record in sales and earnings for the first quarter of 2022.
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Tesla delivered a solid performance
2021 was a great year for Tesla. It posted a record volume of 940,000 vehicles, record revenue of $47 billion, and record net profit of $5.5 billion.
And Tesla followed this up in the first quarter of 2022, as quarterly revenue reached an all-time high of $18.8 billion, up 81% year over year, while net profit rose more than sixfold to $3.3 billion.
On top of its strong financials, Tesla began delivering Model Y cars from its new factories in Texas and Berlin. With these two factories up and running, the company is well-positioned to ramp up its production to meet the growing demand for electric vehicles (EVs). So there is a good chance that Tesla can sustain and potentially expand its record operating margin of 19.2% due to operating leverage.
CEO Elon Musk reiterated that Tesla is on track to deliver 50% growth in vehicle production in 2022, and it could even raise that to 60% production growth. In short, Tesla expects another record year in 2022!
NASDAQ: TSLA
Key Data Points
Potential challenges in the coming months
Tesla has started 2022 on a strong note. And while it expects the remaining quarters to be equally strong, the road ahead is bumpy with external challenges. Ongoing geopolitical tensions and the recurring COVID-19 outbreaks are some of the main factors driving supply chain disruption. For example, the tech company had to shut down production in Shanghai amid COVID outbreaks. And its energy storage business was severely affected by the shortage of semiconductors.
The immediate outcome of these disruptions is a higher cost of doing business. Its chief financial officer said that the per-unit vehicle cost rose in the quarter due to inflation in raw materials, logistics, and other areas. If these problems persist, costs could rise further in the coming months.
Internally, Tesla has to manage the ramping up of two new factories. While the launch has been successful so far, there is no guarantee that there will not be any hiccups as it increases production in these factories. Any significant disruption in production will affect the company's efforts to grow output by 50% in 2022.
A quick word on Tesla's valuation
There are many reasons to be optimistic about Tesla. It is a clear leader in the growing EV industry, and its recent financial performance is remarkable. But before we all go rushing into the stock, it is crucial to mention that the share price probably reflects most of these positive factors.
Even after declining about 30% from its all-time high as of this writing, the company is still trading at an elevated valuation. For perspective, Tesla's price-to-sales (P/S) and price-to-earnings (P/E) ratios are 16 and 119, respectively. In comparison, Ford trades at 0.4 P/S and a P/E of 3.
While Tesla stock is much cheaper today than a few months ago, it is probably still not a bargain that investors can safely buy. I will personally keep a close eye on Tesla's execution in the coming months before making any investment move.
